4.8 Other post-employment benefits (OPEB)
7 min read•august 21, 2024
Other post-employment benefits (OPEB) are a crucial part of employee compensation packages, covering non- provided after retirement. These include healthcare, life insurance, and disability benefits, which differ from pensions in funding requirements and tax treatment.
OPEB accounting aligns with pension principles but has unique considerations for healthcare benefits. Proper accounting ensures transparent reporting of long-term liabilities and helps organizations manage future benefit obligations. Recognition criteria, measurement of obligations, and actuarial assumptions are key components in OPEB accounting.
Nature of OPEB
- Other post-employment benefits encompass non-pension benefits provided to employees after retirement
- OPEB plays a crucial role in employee compensation packages and long-term financial planning for organizations
Types of OPEB
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- Healthcare benefits cover medical, dental, and vision insurance for retirees
- Life insurance policies extend coverage beyond an employee's active service years
- Disability benefits provide financial support for retirees with qualifying disabilities
- Long-term care insurance assists with costs of extended medical care or assisted living facilities
Differences vs pensions
- OPEB typically lacks the same legal funding requirements as pension plans
- Benefit amounts for OPEB often fluctuate based on healthcare costs, unlike fixed pension payments
- OPEB plans generally do not accumulate assets in a trust, contrasting with funded pension arrangements
- Tax treatment differs, with OPEB benefits usually taxable to retirees while pension income may be partially tax-deferred
Accounting for OPEB
- OPEB accounting aligns with pension accounting principles but incorporates unique considerations for healthcare benefits
- Proper OPEB accounting ensures transparent reporting of long-term liabilities and helps organizations manage future benefit obligations
Recognition criteria
- Employers recognize OPEB liability when employees earn the right to receive future benefits through service
- Probable future economic sacrifice triggers recognition of OPEB obligations on financial statements
- Measurement reliability determines when OPEB costs and obligations are recorded in financial reports
- Recognition timing often coincides with an employee's full eligibility date for post-retirement benefits
Measurement of obligations
- estimate future benefit payments discounted to current dollars
- Actuarial valuations determine the for OPEB plans
- represents the actuarial present value of benefits attributed to employee service to date
- measures benefits based on employee service and compensation to the measurement date
Service cost components
- reflects the increase in OPEB obligation due to employee service in the current period
- arises from plan amendments that increase benefits related to employee service in prior periods
- accounts for the increase in the present value of the OPEB obligation due to the passage of time
- result from changes in assumptions or differences between expected and actual plan experience
Actuarial assumptions
- Actuarial assumptions form the foundation for estimating OPEB obligations and costs
- Regular review and updating of assumptions ensure accurate financial reporting and plan management
Demographic assumptions
- predict life expectancy of plan participants and beneficiaries
- estimates when employees will begin receiving OPEB benefits
- account for employees leaving the organization before retirement
- project the likelihood of employees becoming disabled before retirement
Financial assumptions
- determine the present value of future benefit obligations
- project future increases in medical costs and premiums
- estimate future compensation levels for salary-dependent benefits
- influence various financial assumptions and overall benefit cost projections
Funding OPEB plans
- OPEB funding strategies impact an organization's financial position and cash flow management
- Proper funding helps ensure long-term sustainability of post-employment benefit promises
Funded vs unfunded plans
- accumulate assets in a separate trust to pay future benefits
- operate on a pay-as-you-go basis, with benefits paid from current operating funds
- combine elements of both approaches, setting aside some assets for future obligations
- Funding status affects financial statement presentation and
OPEB trusts
- provide tax-advantaged funding for OPEB
- offer public sector entities a mechanism for prefunding OPEB obligations
- Trust assets are legally protected from creditors and can only be used to pay plan benefits
- Investment policies for typically aim to balance growth and preservation of capital
Financial statement presentation
- OPEB accounting impacts multiple financial statement components
- Clear presentation and disclosure of OPEB information enhances transparency for financial statement users
Balance sheet items
- represents the of the plan
- capture certain changes in the OPEB liability not yet recognized in expense
- reflect short-term obligations for upcoming benefit payments
- may arise when employers contribute more than the annual required contribution
Income statement effects
- is typically included in operating expenses
- is often reported as a non-operating expense
- and actuarial gains/losses affects periodic OPEB expense
- may impact the income statement in specific circumstances
Disclosure requirements
- Description of the OPEB plan and benefits provided
- Significant accounting policies and actuarial methods used
- Assumptions used in measuring the OPEB obligation and expense
- Reconciliation of beginning and ending balances of the OPEB liability
- Sensitivity analysis showing the impact of changes in key assumptions
- Expected future benefit payments and contributions
Regulatory environment
- OPEB accounting and reporting are subject to evolving regulatory standards
- Understanding the regulatory landscape is crucial for compliance and comparability
FASB guidance
- Accounting Standards Codification (ASC) 715 provides the primary guidance for OPEB accounting
- ASU 2017-07 requires separate presentation of service cost and other OPEB expense components
- Ongoing FASB projects may introduce future changes to OPEB accounting standards
- Emerging Issues Task Force (EITF) addresses specific implementation questions related to OPEB
International standards comparison
- International Accounting Standard (IAS) 19 covers employee benefits, including OPEB
- IFRS treatment of OPEB aligns closely with U.S. GAAP, with some differences in recognition and measurement
- Convergence efforts between FASB and IASB aim to reduce disparities in global accounting practices
- Multinational companies must navigate differences between U.S. GAAP and IFRS for OPEB reporting
OPEB plan modifications
- Plan modifications can significantly impact OPEB obligations and accounting treatment
- Careful analysis is required to determine the appropriate accounting for plan changes
Curtailments
- Curtailments occur when a significant reduction in future years of service or covered employees takes place
- Immediate recognition of a portion of unamortized prior service cost may be required
- Curtailment gains or losses are calculated based on the change in projected benefit obligation
- Accounting treatment depends on whether the curtailment results in a gain or loss
Settlements
- Settlements involve transactions that irrevocably relieve the employer of primary responsibility for OPEB obligations
- Lump-sum payments to retirees in exchange for future benefits constitute a common form of settlement
- Settlement accounting requires immediate recognition of a portion of unrecognized gains or losses
- The settlement threshold is typically based on service cost plus interest cost for the period
Special considerations
- Unique aspects of OPEB plans require specific accounting and management approaches
- Addressing these considerations ensures more accurate OPEB valuation and reporting
Healthcare cost trends
- Medical cost inflation often outpaces general inflation, impacting long-term OPEB projections
- Prescription drug costs and utilization patterns significantly influence overall healthcare trends
- Technological advancements in medical treatments can lead to cost increases or potential savings
- Demographic shifts, such as an aging population, affect healthcare cost projections for OPEB plans
Medicare coordination
- Medicare becomes the primary payer for eligible retirees, reducing employer OPEB costs
- Coordination of benefits between employer plans and Medicare impacts actuarial assumptions
- Medicare Part D subsidies for prescription drug coverage affect OPEB obligation measurements
- Changes in Medicare policies and reimbursement rates can significantly impact OPEB liabilities
Auditing OPEB
- OPEB audits focus on ensuring accurate measurement and disclosure of post-employment benefit obligations
- Specialized knowledge of actuarial concepts and OPEB accounting standards is crucial for effective audits
Key audit procedures
- Review and testing of actuarial reports and underlying assumptions
- Examination of census data accuracy and completeness
- Verification of plan assets and investment valuations for funded OPEB plans
- Testing of benefit payments and plan contributions
- Evaluation of financial statement disclosures for compliance with accounting standards
- Assessment of management's process for selecting and applying actuarial assumptions
Risk assessment
- Complexity of actuarial calculations increases the risk of material misstatement
- Changes in key assumptions can significantly impact OPEB obligations and expenses
- Plan amendments or curtailments may not be properly accounted for or disclosed
- Incomplete or inaccurate census data can lead to errors in OPEB liability measurement
- Funding status and investment performance of OPEB trusts affect financial statement presentation
Current issues in OPEB
- Evolving healthcare landscape and demographic trends continue to shape OPEB accounting and management
- Organizations must stay informed about emerging issues to effectively manage OPEB obligations
Healthcare reform impacts
- Affordable Care Act provisions affect OPEB cost projections and plan designs
- Potential future healthcare policy changes create uncertainty in long-term OPEB planning
- Shifts towards consumer-driven health plans influence retiree healthcare benefit structures
- Expansion of telemedicine and digital health solutions may impact future healthcare cost trends
Trends in OPEB offerings
- Many employers are reducing or eliminating OPEB to manage long-term liabilities
- Shift from defined benefit to defined contribution approaches for retiree healthcare
- Increased use of health savings accounts (HSAs) as a vehicle for funding post-retirement healthcare
- Growing interest in private exchanges and Medicare Advantage plans for retiree coverage
Key Terms to Review (48)
Accrued OPEB costs: Accrued OPEB costs refer to the expenses recognized in financial statements for other post-employment benefits that have been earned by employees but not yet paid. This includes benefits like healthcare coverage and life insurance for retirees, which are important components of a company’s overall compensation package. Understanding these accrued costs is crucial for accurately assessing a company's liabilities and financial health, as they can significantly impact future cash flows and profitability.
Accumulated postretirement benefit obligation (APBO): The accumulated postretirement benefit obligation (APBO) refers to the total present value of future benefits that a company is obligated to pay to its retirees, based on employees' service rendered up to the measurement date. This term is crucial as it encompasses all future payments for health care, life insurance, and other post-employment benefits, excluding pensions. The APBO plays an essential role in understanding a company's financial health and obligations related to postretirement benefits.
Actuarial gains or losses: Actuarial gains or losses refer to the changes in the value of a company's pension or other post-employment benefit obligations that result from differences between actual and expected outcomes based on actuarial assumptions. These assumptions include factors such as discount rates, mortality rates, and employee turnover rates. In the context of other post-employment benefits, actuarial gains or losses can significantly impact the financial statements, reflecting changes in the estimated costs of future benefits.
Actuarial valuation: Actuarial valuation is a quantitative assessment that uses statistical methods and financial theories to evaluate the financial health of an organization’s pension or other post-employment benefit plans. This process involves calculating the present value of future benefit obligations, taking into account factors such as employee demographics, economic conditions, and assumptions about future events. Accurate actuarial valuations are essential for managing liabilities and ensuring compliance with accounting standards.
Amortization of prior service costs: Amortization of prior service costs refers to the gradual expense recognition of costs associated with benefits granted to employees for services rendered in prior periods, often related to pension plans or other post-employment benefits. This process spreads the cost over the employees' remaining service period, ensuring that financial statements reflect the expense in a systematic and rational manner. It connects to the overall accounting for employee benefits by impacting how companies report their liabilities and expenses.
Annual Required Contribution (ARC): The Annual Required Contribution (ARC) is the amount that an employer must contribute each year to fund its other post-employment benefits (OPEB) obligations, such as retiree health insurance. This contribution is calculated based on actuarial assumptions and represents a necessary funding strategy to meet future benefit payouts. Understanding ARC is vital for employers to ensure they adequately set aside funds to cover their long-term liabilities associated with OPEB commitments.
Current service cost: Current service cost refers to the actuarial present value of benefits attributed to employee service during a specific period, typically a fiscal year. It plays a critical role in the accounting for pension and other post-employment benefit plans, directly impacting the financial statements by representing the cost incurred for providing these benefits to employees in the current period.
Curtailment and Settlement Gains or Losses: Curtailment refers to a significant reduction in the benefits provided by an OPEB plan, while settlement gains or losses occur when an employer pays off the plan obligations, either partially or fully, resulting in a change in the recognized liability. These concepts are crucial for understanding how changes in an OPEB plan impact a company's financial statements and the obligations it holds towards its employees after they retire. By managing curtailments and settlements, companies can influence their reported expenses and liabilities associated with post-employment benefits.
Deferred outflows and inflows of resources: Deferred outflows and inflows of resources are financial statement elements that represent the consumption of resources that will be recognized as expenses or revenues in future periods. They are crucial in accounting as they help match revenues and expenses in the correct periods, ensuring that financial statements provide a true representation of an entity's financial position. Specifically, in the context of benefits provided to employees after their service period ends, these deferred items reflect the timing differences between when costs are incurred and when they will be recognized in financial reports.
Defined Benefit Plans: Defined benefit plans are employer-sponsored retirement plans that promise a specified monthly benefit upon retirement, based on factors such as salary history and duration of employment. These plans shift the investment risk from employees to employers, requiring the employer to ensure there are enough funds to pay the promised benefits, regardless of the investment performance.
Defined Contribution Plans: Defined contribution plans are retirement savings plans where the amount contributed is specified, but the future benefits depend on the investment performance of the contributions. These plans shift the investment risk to employees, as they are responsible for managing their own accounts and deciding how much to contribute, leading to varying retirement income based on market performance.
Disability incidence rates: Disability incidence rates refer to the frequency at which new cases of disability occur in a specific population over a given period. These rates are crucial in understanding the overall health of a population, especially concerning how disabilities can affect workforce participation and the need for support services, including other post-employment benefits.
Disclosure Requirements: Disclosure requirements refer to the mandated practices that companies must follow to provide relevant financial information to stakeholders, ensuring transparency and enabling informed decision-making. These requirements can vary based on the nature of the transactions, the complexity of financial instruments, and the jurisdiction in which a company operates, all of which affect how and what information is reported.
Discount rates: Discount rates refer to the interest rates used to determine the present value of future cash flows. They play a critical role in financial decision-making, especially when evaluating long-term liabilities and obligations like Other Post-Employment Benefits (OPEB). By applying a discount rate, companies can assess the current worth of future payments they expect to make for these benefits, ensuring accurate financial reporting and compliance with accounting standards.
Expected postretirement benefit obligation (epbo): The expected postretirement benefit obligation (EPBO) is the present value of future cash outflows that a company expects to pay for postretirement benefits, such as healthcare and life insurance, earned by employees during their tenure. It represents a company's liability for these future benefits and is crucial for understanding the financial impact of such commitments on an organization's balance sheet.
Expense recognition: Expense recognition is the accounting principle that dictates when expenses should be recorded in the financial statements. It is primarily based on the matching principle, which requires that expenses be recognized in the same period as the revenues they help generate. This ensures that financial statements reflect a company's actual financial performance, providing a clearer picture of profitability over time.
FASB ASC 715: FASB ASC 715 is the Financial Accounting Standards Board's Accounting Standards Codification topic that provides guidance on the accounting and reporting for pension and other post-employment benefits. This standard helps organizations measure their obligations and recognize the costs associated with these benefits, ensuring transparency in financial statements. It also outlines the requirements for disclosures related to these benefits, which are crucial for understanding an entity's financial health.
Funded plans: Funded plans are post-employment benefit plans where the employer sets aside assets in a separate trust or account to pay for future benefits. This approach helps ensure that funds are available to meet the obligations of the plan, making it a crucial aspect of managing other post-employment benefits (OPEB). By pre-funding these obligations, companies can reduce financial risk and provide a more reliable source of income for retirees.
Funded Status: Funded status refers to the financial health of a pension plan or other post-employment benefit plans, indicating whether the plan's assets are sufficient to meet its future obligations. A positive funded status means that the plan has more assets than liabilities, while a negative funded status indicates a shortfall, meaning the plan may struggle to pay promised benefits. Understanding funded status is crucial for assessing the viability of pension obligations and other post-employment benefits.
Funding shortfalls: Funding shortfalls occur when the resources allocated to cover specific obligations, such as benefits or services, are insufficient to meet the actual costs incurred. This is particularly relevant in the context of liabilities related to other post-employment benefits, where organizations may struggle to set aside enough funds to cover future expenses for retired employees. Understanding funding shortfalls is crucial as they can lead to financial strain on organizations and impact the long-term viability of promised benefits.
GASB Statement No. 45: GASB Statement No. 45 is a standard issued by the Governmental Accounting Standards Board that establishes financial reporting requirements for Other Post-Employment Benefits (OPEB) other than pensions. This statement requires state and local governments to recognize the cost of OPEB in their financial statements, promoting transparency and accountability in how these benefits are funded and managed.
Healthcare cost trend rates: Healthcare cost trend rates refer to the projected rate of increase in healthcare expenses over a specific period. These rates are crucial for estimating the future costs associated with healthcare benefits, especially for entities providing other post-employment benefits, as they help organizations budget and plan for these anticipated expenses.
Inflation rates: Inflation rates refer to the percentage increase in the general price level of goods and services over a specific period, usually measured annually. This rate is crucial for understanding the economic environment in which businesses and individuals operate, affecting purchasing power and investment decisions.
Interest cost: Interest cost refers to the financial expense incurred by a company when it borrows money, impacting its overall cost of capital. This concept is crucial in evaluating the long-term obligations of companies, particularly in connection with pension plans and other post-employment benefits. Understanding interest cost helps in assessing how these expenses influence financial statements and the valuation of future cash flows associated with various employee benefits.
Interest cost on the OPEB liability: Interest cost on the OPEB liability refers to the increase in the present value of the projected benefit payments for other post-employment benefits due to the passage of time. As time goes by, the amount owed increases because the obligation accumulates interest, reflecting the time value of money. This cost is recognized as a component of the total OPEB expense in financial statements, impacting how organizations account for their future obligations to retired employees.
Liability management: Liability management is the process of managing a company’s financial obligations to ensure it can meet its debts and obligations as they come due. This involves strategic planning and decision-making to optimize the use of liabilities, especially in the context of funding and financing operations, while minimizing risks associated with defaulting on these obligations.
Mortality rates: Mortality rates refer to the measure of the frequency of occurrence of death in a specific population during a specified time period. This statistical metric is crucial for assessing the long-term sustainability and financial health of pension plans and other post-employment benefits, as it helps in estimating future liabilities and determining the costs associated with these benefits over time.
Net OPEB liability (or asset): Net OPEB liability (or asset) refers to the difference between the total OPEB liability and the plan assets available to pay for those benefits. This term is crucial for understanding how organizations manage their other post-employment benefits, which typically include healthcare coverage and other non-pension benefits. The net liability indicates the extent to which an organization needs to fund these benefits in the future, while a net asset signifies that there are sufficient resources set aside to cover these obligations.
Net OPEB Obligation (NOO): Net OPEB Obligation (NOO) represents the difference between the annual required contribution (ARC) to a post-employment benefits plan and the actual contributions made during a specific period. This term is crucial in understanding how organizations account for other post-employment benefits (OPEB), such as healthcare, dental, and life insurance, that are provided to employees after retirement. It reflects the financial liability associated with these benefits and how they impact an organization’s balance sheet and financial reporting.
Notes to financial statements: Notes to financial statements are additional disclosures provided alongside a company's financial statements that offer detailed explanations and context for the numbers presented. These notes enhance the clarity of the financial data by outlining accounting policies, potential risks, and other critical information that users need to make informed decisions. They play a significant role in understanding complex topics like other post-employment benefits and changes in accounting estimates, ensuring transparency and completeness in financial reporting.
OPEB Trusts: OPEB trusts are specialized funds established by employers to pre-fund and manage the costs associated with other post-employment benefits (OPEB), such as retiree health care and life insurance. These trusts are designed to set aside money in advance to cover future liabilities, helping employers manage the long-term costs of providing these benefits while also ensuring compliance with accounting standards.
Opeb-related accrued expenses: OPEB-related accrued expenses are the costs associated with other post-employment benefits that a company recognizes as liabilities on its financial statements. These expenses arise when a company promises benefits such as health care or life insurance to employees after they retire, and they reflect the company's obligation to pay for those benefits over time. Recognizing these expenses helps ensure that the company's financial position accurately reflects its future obligations to retirees.
Partially funded plans: Partially funded plans are retirement or post-employment benefit plans where the contributions made by the employer and, in some cases, the employee, do not fully cover the projected future benefits owed to participants. This means that while some assets have been set aside to meet future obligations, there remains a gap between these assets and the total expected payout, which can create funding challenges over time.
Pay-as-you-go method: The pay-as-you-go method is an accounting approach for recognizing and funding other post-employment benefits (OPEB) by paying the benefits as they become due rather than accruing the costs over time. This method connects directly to the management of OPEB liabilities, emphasizing immediate payment obligations without creating large unfunded liabilities on the balance sheet. It is often used by organizations to manage cash flow and reduce future financial burdens related to retiree benefits.
Pension Benefits: Pension benefits are retirement income provided to employees based on their years of service, salary history, and a predetermined formula. These benefits can take the form of regular monthly payments or lump-sum distributions upon retirement, ensuring financial security for employees after they leave the workforce. Pension plans may be categorized into defined benefit plans, which guarantee a specific payout, and defined contribution plans, where the payout depends on contributions and investment performance.
Prepaid OPEB assets: Prepaid OPEB assets refer to the advance payments made by an employer towards the future costs of Other Post-Employment Benefits (OPEB) for employees, such as health care and life insurance. These assets represent a prepayment that will be used to cover future obligations related to benefits provided to retirees. Recognizing these prepaid assets helps companies manage their future liabilities more effectively and ensures they have funds set aside for these expected costs.
Present Value Calculations: Present value calculations are financial formulas used to determine the current worth of a cash flow or series of cash flows that will be received or paid in the future, discounted back to the present using a specific interest rate. This concept is vital for evaluating investments, determining the value of future obligations, and understanding how much a series of future payments is worth today. It’s particularly relevant in assessing liabilities like other post-employment benefits (OPEB), where future benefit payments must be quantified to reflect their current financial impact.
Prior service cost: Prior service cost refers to the costs associated with benefits that are granted to employees for services rendered in prior periods, typically as a result of a plan amendment or initiation. This cost is recognized when an employer modifies its post-employment benefit plan, which can include pension benefits or other retirement-related compensations, and it affects the financial statements by impacting both income and the balance sheet through increased liabilities.
Projected Benefit Obligation (PBO): The projected benefit obligation (PBO) is an accounting measure used to estimate the present value of future pension benefits that employees have earned based on their service to date, considering expected future salary increases. It represents the company's commitment to provide retirement benefits to its employees and reflects the obligation that arises from defined benefit pension plans, which require companies to pay specific benefits upon retirement.
Projected unit credit method: The projected unit credit method is an actuarial valuation technique used to calculate the present value of a company's obligation for post-employment benefits, including pensions and other post-employment benefits. This method estimates the total benefits payable to employees based on their projected future salary increases and service years, allocating the cost of these benefits over the employee's working life in a systematic manner. By considering the time value of money, this approach helps businesses accurately report their obligations and costs related to future employee benefits.
Retiree Health Benefits: Retiree health benefits are non-wage compensation provided to employees after they retire, typically covering medical expenses and related healthcare costs. These benefits are an important component of an employer's overall compensation package and often fall under the umbrella of other post-employment benefits (OPEB), which can include various forms of health insurance and support for retirees.
Retirement Age: Retirement age refers to the designated age at which an individual is eligible to retire from work and begin receiving retirement benefits, such as pensions or social security. This age is important because it influences financial planning for employees, as well as the cost and management of post-employment benefits provided by employers, which includes healthcare and other perks that continue after retirement.
Salary progression rates: Salary progression rates refer to the rate at which an employee's salary increases over time, typically due to factors like performance, tenure, or promotions. These rates are critical in understanding how compensation evolves, especially in the context of obligations related to other post-employment benefits, as they can significantly influence the calculation of future benefit costs and funding requirements.
Section 115 trusts: Section 115 trusts refer to specific types of trusts established under the Income Tax Assessment Act, which are designed to provide post-employment benefits and other entitlements to employees. These trusts help employers manage their obligations regarding employee benefits by allowing funds to be accumulated and distributed in a tax-effective manner, especially in relation to OPEB. They play a crucial role in ensuring that employees receive their post-employment benefits in a structured and compliant way.
Service cost component: The service cost component refers to the present value of benefits earned by employees during a specific period for services rendered in that same period. It is a critical part of the calculation for pension and other post-employment benefits, as it highlights the expense that a company incurs as employees provide their labor. Understanding this component is essential for accurately accounting for and reporting obligations related to retirement plans and other benefits.
Turnover Rates: Turnover rates refer to the measure of how frequently employees leave a company and are replaced by new hires, usually expressed as a percentage. This concept is particularly relevant when discussing other post-employment benefits (OPEB) because high turnover can significantly impact the costs associated with providing these benefits, such as healthcare and pensions. Understanding turnover rates helps organizations manage their workforce more effectively and predict future OPEB liabilities.
Unfunded Plans: Unfunded plans refer to retirement or post-employment benefit plans where the employer does not set aside assets to cover the future liabilities associated with the benefits promised to employees. Instead of pre-funding these obligations, the employer commits to paying benefits as they come due, creating a direct liability on the company’s balance sheet. This approach can significantly impact a company's financial health, particularly in relation to its cash flow and liabilities.
Voluntary Employees' Beneficiary Association (VEBA) Trusts: A Voluntary Employees' Beneficiary Association (VEBA) Trust is a type of tax-exempt trust established by an employer to provide employee benefits, typically for post-employment health care and other welfare benefits. These trusts allow employers to set aside funds to cover the cost of future benefits for employees, and they play a significant role in managing other post-employment benefits (OPEB) while offering tax advantages for both the employer and employees.